When can a Liquidator get paid?

Circumstances in which a court appointed liquidator can claim remuneration 

The function of a liquidator is to realise the assets of a company. The creditors, who hope to recover some of their debts out of the assets, therefore have a direct interest in the level of costs, and in particular the remuneration of the liquidator, if one is appointed.

The theme of this article revolves around the circumstances in which a court-appointed liquidator may claim his salary or fees, i.e. remuneration, in respect of liquidation works undertaken. Before discussing on how such fees are paid, an issue that needs to be considered is when can a liquidator seek to be remunerated? Generally, a liquidator is not entitled to be paid until the liquidation process has been completed. However, if the winding up is unduly protracted, the liquidator may apply from time to time to the Court to sanction payments, provided evidence is led to show the actual work done up to the date of the application.

Not As Of Right

The liquidator cannot as of right take monies in the company on the basis that he has carried out work in the liquidation process. As an officer of the court, the liquidator holds a position of trust in respect of the company in liquidation for and on behalf of the contributories and creditors.

Section 479(2) of the Companies Act 2016 sets out the manner in which a liquidator is remunerated. The basic premise is for there to be an agreement between the liquidator and the committee of inspection (should one exist) or by a resolution passed at a creditors meeting, or failing those two circumstances, by the Court. When seeking agreement for the basis of remuneration, the liquidator should provide sufficient supporting information to enable the committee or the creditors to make an informed judgment as to whether the basis sought is appropriate having regard to all the circumstances of the case. In cases where the liquidator convenes a creditor’s meeting to deliberate his remuneration, pursuant to Section 479(2), any resolution passed in this regard shall be by a majority of not less than 75% in value and 50% in the number of creditors present at the meeting.

In the event the liquidator is at an impasse with the COI or creditors on the fixing of his remuneration, an application will have to be made to the Court by way of a Summons in Chambers supported by an affidavit stating the amount claimed by the liquidator and the grounds in support thereof.

Assessing Reasonable Remuneration

Where no agreement has been reached or no resolution is passed at a creditor’s meeting, an application to Court will have to be made. Section 479(2) of the CA 2016 gives discretion to the Court to fix the remuneration of the liquidator. The common methods adopted by the Court would be on a‘time cost’or a‘percentage of assets realised’basis or a combination of both. This would ordinarily involve the liquidator furnishing the Court with a summary of works done or a time cost sheet containing particulars and the duration spent on carrying out such liquidation works. The quantum of payment the liquidator receives should be based on:

• The complexity of the case;
• ​How effectively he carries out his duties;
• ​Any extra responsibility the liquidator takes on outside his primary role of realizing the assets of the company;
• ​The value and nature of the assets held by the company

It is permissible for a liquidator to have a team of administrative staff to assist him in the discharge of his duties. This would form part of the liquidator’s broader overhead costs. If any part of the remuneration is sought on a time costs basis, the Liquidator should provide the liquidatordetails of the minimum time units used and current charge-out rates, split by grades of staff,andof those people who have been or who are likely to be involved in the time costs aspects of the case. The Liquidator should also provide details and the cost of any work that has been or is intended to be sub-contracted out that could otherwise be carried out by the liquidator or his or her staff. However, it must be borne in mind that the Court may reduce the quantum of remuneration claimed if it appears that certain tasks claimed by the liquidator could have been more cost-efficiently performed by his administrative staff. For purposes of clarity, apart from the liquidator’s fee, other costs and disbursements incurred by the liquidator in connection with the liquidation should be appropriate and reasonable.

In the ordinary course, the fixing of remuneration comes down to ensuring the claim is based on work undertaken in the course of administration; and that the amount claimed was a fair and reasonable sum. Therefore, the burden of proof lies with the liquidator to show that the remuneration claimed is justifiable. It is important to highlight that the benchmark in the assessment process of fairness and reasonableness would only come into play in the event no agreement is reached between the liquidator and the committee of inspection (should one exist) or alternatively, if no resolution has been passed at a creditors meeting.

When Paid?

Generally speaking, under Rule 142 of the Winding Up Rules, theremunerationof aliquidator,shall not be paid out of the assets of the company until after the necessary deductions are made towards payment of secured creditors out of the proceeds of their securities. In so far as unsecured creditors are concerned, pursuant to section 527 of the CA 2016 (previously 292 CA 1965), the remuneration of liquidators is ranked the highest in the list of priorities concerning all unsecured debts incurred by the company.

Where there is no committee of inspection in place, case law suggests that it is possible for a liquidator to have his fees paid out from the assets of the company first and thereafter have the said remuneration ratified by an order of Court.

From the express wordings of section 479 of the CA 2016, the only parties that can be represented at the fixing of the remuneration are the liquidators and the members of the committee of inspection (or if one does not exist), the creditors. This means that director(s) of the company have no right to participate or to be heard on this issue. Shareholders, however, are afforded a right under section 454 of the CA 2016 to apply to court to vary the remuneration which has been fixed by agreement with the committee of inspection and the decision of the Court in this regard shall be final and conclusive.

Summary

The factors that the Court are likely to consider in assessing what amounts to fair and reasonable remuneration are as follows:

1. The duration of the liquidation and particularly, whether the liquidation has been unduly protracted;
2. The nature and complexity of the liquidation work undertaken;
3. The amount or value of assets of the company realized; and
4. The experience of the liquidator (this would be relevant towards assessing whether the charge out rate of the liquidator is reasonable).

This article is for informational purposes only, and must not be relied upon as a substitute for obtaining legal advice from a qualified lawyer, provided specifically with reference to all the facts of a particular situation and the law of your jurisdiction.